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Two Wall Street Titans Warn About the Rising Risk of a Debt-Driven Crisis

LUCAS JACKSON/Reuters

By The Fiscal Times Staff

November 8, 2018

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“[W]hen you have two of the most influential people in finance sounding the alarm over the same scenario, it’s probably time to start paying attention,” says Bloomberg’s Brian Chappatta.

The two people he’s referring to are Larry Fink, CEO of financial powerhouse BlackRock, and Ray Dalio, the billionaire Bridgewater Associates hedge fund titan. The scenario they’re warning about is an economic crunch resulting from a cascade of market events triggered by high and rising national debt levels.

“We are going to have more and more debt because of the deficits, and because of the deficits, the investors are going to demand a bigger premium,” Fink said Wednesday at a Bloomberg forum in Singapore, according to Chappatta. “That could be the real issue related to everything: where we have interest rates becoming too high to sustain the economy with its growth rates.”

Dalio recently issued a similar warning about a potential nightmare scenario in which heavy borrowing by the Treasury leads to a weakening of the dollar and a pullback by foreign buyers of U.S. debt.

Chappatta says that, while the scenarios described by Fink and Dalio are worth keeping an eye on, it’s too early to really worry about the strength and global status of the U.S. dollar. His verdict:

“I’ve been asked in recent weeks whether deficits matter and whether bond vigilantes will make a triumphant return in 2019. I just don’t see it, even with the U.S. federal debt now the same size as the country’s gross domestic product. There will come a time when deficits catch up to America, but only when King Dollar is under attack. At the moment, the rest of the world can’t mount a challenge.”